Chinese stocks extend gains after Beijing's stimulus bazooka

By Jamie Chisholm

Chinese stocks on Wednesday extended their rally triggered by Beijing's monetary stimulus bazooka, though optimism elsewhere in the region could not be sustained.

Hong Kong's Hang Seng Index HK:HSI added to Tuesday's 4.1% bounce with a 0.7% gain while on the mainland the China Securities Index 300 XX:000300rose 1.5% following the previous session's 4.3% jump.

The CSI 300's surge on Tuesday followed news of a large stimulus package launched by the People's Bank of China in conjunction with other ministries that was designed to revive the ailing housing sector, boost lending into the broader economy and support equity prices.

And on Wednesday the Ministry of Finance and Ministry of Civil Affairs said they will give one-off cash handouts within the next week to disadvantaged groups, including orphans and those in extreme poverty, according to a Bloomberg report.

"The measures represent the largest set of stimulus since the pandemic, with the stock market and the beleaguered property sector in particular focus," said Richard Hunter, head of markets at Interactive Investor.

"Of course, the measures will also come with a time lag before any benefits can be seen in the real economy, but the fact that the authorities have at last responded to a growing clamor from investors for economic support has been warmly received," Hunter added.

Commodities particularly sensitive to China's construction activity continued to rally, with iron ore futures traded on China's Dalian Commodity Exchange hitting an intraday high of 730.5 yuan per metric ton, the highest price since September 2, according to Reuters.

However, there were also signs that the ebullience sparked the previous day may be fading. The price of copper (HG00), also closely correlated to hopes for China's economic activity, slipped back by 1.2%, while Brent crude oil (BRN00) also dipped.

And other bourses in Asia could not maintain their positive momentum, with Japan's Nikkei 225 JP:NIK falling 0.2%, Australia's S&P/ASX 200 AU:XJO down 0.2% and Singapore's FTSE Straits Times Index SG:STI off 1%.

"Investors have begun to question whether any of the stimulus measures announced by the Chinese authorities on Tuesday would address the fundamental structural issues, despite the euphoria that had accompanied the announcement," said Patrick Munnelly, market strategist at Tickmill Group.

Analysts at Goldman Sachs led by Kinger Lau said it was likely that the part of the stimulus directed at the stock market, including funding for companies to buyback their shares, would support equities in the short term at least.

However, as long as the property market remained such a drag on sentiment Chinese stocks will remain a "trade" rather than a long term investment, according to Goldman.

"We believe investors will be reluctant to underwrite long-term Chinese growth and will continue to engage China equity tactically until they feel confident about the scale...and the effectiveness of the housing rescue plan, or see signs that the cycle is approaching the tail end," said Goldman.

-Jamie Chisholm

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09-25-24 0948ET

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